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EIA report changes the outlook for oil stocks

Topic: Energy — Oil
Apr. 16 2015, 09:50 AM ET - by VF member bz1516 (2444 gold star (click for information on feedback))

EIA report changes the outlook for oil stocks --

The EIA report came out yesterday and it was fairly bullish. Crude stocks at Cushing were up only slightly more than 1mm bbls for the second week in a row to 61mm bbls. Previously Cushing had weekly increases in storage averaging 2mm bbls.

Total crude stocks were also up only a little over 1mm bbls at 483mm bbls, breaking the trend of large weekly increases that had been in effect since the beginning of the year. At the same time production has now hovered at around 9.4mm bbls/day for five weeks in a row. With another week or two of production at the same level it looks like it may have finally leveled off, just as the EIA had forecast.

All this sets the stage for oil to end what has been a precipitous drop in price since last summer and allow it to settle in at least for the time being at some number around $50 for WTI. Once production increases end the current imbalance of too much supply then has to come into equilibrium. This can only occur by actual decreases in production or further decreases in imports. That could take several months or much longer.

There are too many moving parts to prognosticate much past where we are right now. I believe over the long term shale production will replace imports to the US and resume its long term growth trend, but itís hard to say without pipelines replacing a good portion of the current more expensive transportation by rail, and refiners increasing capacity to process the light sweet crude from shale. That will take at least a couple of years. The limit to the size of the market for US exports of refined products is another important unknown.

Nevertheless enough happened yesterday in the EIA report to resume a small position in the oil space as a hedge against further possible increases in oil price and in my case also hedging against a large position in refiners. My preferred way to participate in oil and gas right now is with providers of frac sand in the oilfield services sector. Frac sand is increasing in intensity per well so it should show actual growth before other sectors in the oil space.

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EIA report changes the outlook for oil stocks